Structural Adjustment Programmes in Pakistan - PowerPoint PPT Presentation

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Structural Adjustment Programmes in Pakistan

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  1. Structural Adjustment Programmes in Pakistan

  2. Contd… Structural Adjustment Programmes in Pakistan • Since 1988,, Pakistan’s economic polices, management and performance have been totally determined by adherence to IMF/WB sponsored SAP. • Pakistan had association with IMF before 1988, but before the mid 1970’s, the stabilization and SAP of IMF didn’t play a crucial role in the 3rd world economies management. • The nature and extent of IMF involvement changed drastically in case of Pakistan and other UDCs in the 1980’s. • The agreement from 27/12/1988 to 28/12/1991, signed by interim govt one day before Benazir assume power.

  3. Contd… Structural Adjustment Programmes in Pakistan • The govts from 1988-99 were hesitant in implementation of IMF/WB programmes. However, they did follow their policy measures such as, devaluation, price, exchange rate, interest rate, trade liberalization; public enterprize reforms; and subsidy withdrawal. • 1988-93 agreements, which drastically changed the course of Pakistan economy were agreed by unelected, interim govts.

  4. Implementation of SAP, 1988 • SAP 1988 goes into minute details on almost every account. For e.g., apparently trivial concerns as telephone charges, required the deregulation of bus fares, adjustment of power tariffs, taxes, fee, and user charges for roads, rail, ports, and aviation. • The 1988 prog was supposed to improve financial internal and external balances, increase avg saving rates-particularly in govt and public sectors, and promote & encourage private sector investment and activity.

  5. The key objectives of IMF, SAP over the three-years with the annual targets were as follows: • Reduce the overall budgetary deficit to 6.5% of GDP in 1988-89 to 5.5% in 1989-90 and further to 4.8% in 1990-91, • Contain inflation rate to 10% in 1988-89, reduce to 7% in 1989-90, and to 6.5% in 1990-91. • Reduce the external current account deficit to 3.4% of GDP in 1988-89 to 2.8% in 1989-90 and further to 2.6% in 1990-91, • Reduce the civilian external debt-service ratio from 27-28% 1986-88 to the sustainable level of < 22% in 1990-91, • Increase gross official foreign exchange reserves from the equivalent of about three weeks of merchandize imports at end 1987-8 to a safer level of about seven weeks of imports by 1990-91. • Contain the growth of domestic credit and money supply in line with the growth of nominal GDP at the target rate of inflation, with sufficient allowance for the desired increase in net foreign assets, and • Consistent with the macroeconomic adjustments, sustain real GDP growth at about 5.2% in 1988-89 and 5.5% in 1989-91.

  6. Contd..The key objectives of IMF, SAP over the three-years with the annual targets were as follows: • Poverty Reduction Growth Facility (FRGF) 12/2001 to 12/2004 also highlight the similar sectors. • One sig difference of the older programmes and the recent one is the extent of monitoring the data on key indicators a requirement by IMF from GOP. SBP and GOP to submit data in many cases on weekly basis. • Three key areas where the reforms were to take place • Fiscal policy: decrease the fiscal deficit/GDP ratio, In three yrs from 8% to 4.8%, major emphasis on resource mobilization, major tax measures intended to increase the tax revenue elasticity-to increase total revenue/GDP ratio from 17.6% in 1988 to 20% by1991-92. GST on imports and domestically produced goods Increase utility user charges, strengthen tax administration

  7. Contd..Three key areas where the reforms were to take place • Reduce current26.2% of GDP to 24.87% in 3 yrs. • Reduce subsidies on fertilizer, revise wheat procurement price • Increasing funds to social sector • Increase of 0.4% of GDP for devexpdenditure. • Tighten control over provincial exp and increase their revenue • Trade: Non tariff barriers would be replaced by tariff barriers Reduce the no of banned commodities from 400 to about 80, most tariff concessions and exemptions were to be removed Reducing the tariffs so that imports could be made cheaper

  8. Contd..Three key areas where the reforms were to take place • In PRGF agreement of 2001, these polices have continued. • Financial Sector SAP 1988 highlighted measures to improve the efficiency and profitability of the banking system and to increase the autonomy and accountability of public sector banks.

  9. Was SAP 1988 a success? Achievements and Failure • To obtain a strong growth performance in SAP was expected to maintain a strong growth performance relying mainly increasing investment and improving efficiency in investment. • The deregulation of economy, increased competition from liberalized imports, adjustment in administered prices, along with better fiscal effort. • Fiscal policy • Achievements of SAP weakest in the area of fiscal policy as evaluated by IMF/WB • Tax revenue as % of GDP remained stagnant • Numerous income and wealth tax exemptions eliminated • Simplification and rationalization of tax structure • Debt GDP ratio failed to improve, external debt increased from 44% of GDP to 46.5% of GDP

  10. Contd…Was SAP 1988 a success? Achievements and Failure • Trade and BOP • A stepwise reduction in max tariff rates an elimination of non-tariff barriers • Incentives for exports, trade liberalization encouraged the import of goods and services • Exports increased sharply by 11.6% in $ terms • Trade balance improved significantly from -6.6% of GDP to -4.6% • C/A deficit declined • Increase in FDI

  11. Contd…Was SAP 1988 a success? Achievements and Failure • Financial Sector Two banks sold to private sector liberalized, ten new investment banks were sanctioned, Liberalization in stock market • Liberalization and Privatization Areas where previously only govt could invest, such as power generation, commercial and investment banking, and air and sea transport were opened to private sector. 105 units were put up for privatization, some 67 sold by the end 1992.

  12. Contd…Was SAP 1988 a success? Achievements and Failure • Other areas • Performance of agric sector improved significantly during SAP. • Cotton due to improved technology and higher incentives grew significantly in volume terms • Subsidies on pesiticides, seeds, and agricmachinary were eliminated. • Formal control over price of urea was lifted, prices of phosphorus and potash adjusted upward • Energy prices increased by an avg of 4% in real terms, tele calls were subject to excise duty, earning substantial revenue.

  13. Did Pakistan need to go the IMF? • The overall growth performance of Pakistan has been good • Pak economy was in quite good shape when SAPS were initiated and while it could have been better, it had been functioning adequately without so called assistance. • e.g. Pakistan eco in good shape and didn’t suffer from problems faced by most African and Latin American countries with rampant inflation, low or –ve growth, large external debts etc. • Stabilization meant foe those countries who are at the brink on eco crises.

  14. Contd…Did Pakistan need to go the IMF? • Even the IMF/WB accept the premise that their SAP’s restructure a country’s political economy. • A major purpose of SAPS is to create structural conditions that provide the impetus for enhanced growth • The implicit purpose of the adjustment is to diminish the influence of some social sectors or interest groups who’s political and economic control has blocked the efficient use of a country’s resources. • At the same time adjustment programs stimulate the political and eco ascendance of other groups that can improve the country’s competitiveness in international markets. • These changes have taken place in Pak without adherence to IMF programs suggested by Zaidi, 2004.